South Africa: Renewables Rising, Coal Still King

Editor's Note

"South Africa [is] the world's sixth-largest coal exporter,
seventh-largest coal producer, and thirteenth-largest CO2 emitter,
with per-capita emissions twice the global average. Ninety-four
percent of the country's electricity comes from coal ... The
country's abundant solar and wind resources offer a promising
renewable energy alternative. But entrenched political interests
connected to the ruling party are fighting to expand coal's role in
the national economy." - Adam Welz, "The Future of Coal"

Globally, growth in coal demand is slowing, according to an
International Energy Agency (IEA) report released in December
(http://www.iea.org / direct URL: http://tinyurl.com/kpweano). It
is projected to grow at an average rate of 2.3% per year through
2018, compared with 3.4% per year between 2007 and 2012. "Like it
or not, coal is here to stay for a long time to come," IEA
Executive Director Maria van der Hoeven said. ... "But it is
equally important to emphasise that coal in its current form is
simply unsustainable."

In South Africa, coal is still dominant in energy planning,
although renewable energy projects are advancing rapidly, with new
government support for independent power producers and new interest
from investors.

This AfricaFocus Bulletin contains several background articles on
these trends, both from advocates of renewable energy and from the
investment analysis firm Frost & Sullivan.

For a more extensive report on the future of and obstacles to
renewable energy in South Africa, see "Powering the Future:
Renewable Energy Roll-out in South Africa," Greenpeace Africa,
March 2013 http://www.greenpeace.org /
http://tinyurl.com/lm8lnps (PDF download).

The day South Africa got renewable energy on the grid

In a historic moment earlier this month, the 312,000-panel Kalkbult
Solar PV plant in Kimberley became the first independent renewable
producer to be built, completed and get connected to the grid in
South Africa. When the project officially starts putting power into
the grid, South Africa can finally begin a journey to low carbon
energy production.

The 75MW project will produce in excess of 135 million kWh per
year, enough to power roughly 33,000 South African households.
Getting this power from a renewable source means we're putting
115,000 fewer tons of carbon dioxide into the atmosphere annually
than we would be if this were a dirty fossil fuel plant.

While the plant could produce more power, the Department of Energy
limits the production of this and other solar plants. They cannot
allow renewable energy on the grid at its fullest because the grid
infrastructure is out of date. But renewable energy's potential in
South Africa is far greater than is currently being allowed.

Renewable energy could, in fact, account for 49% of South Africa's
energy production by 2030, instead of the 9% that the government is
currently planning. The Kalkbult project was finished three months
ahead of schedule, declaring 750,000 accident-free hours. With a
labour force composed of 16% women, the project created more than
500 jobs in the area. The Energy [R]evolution has the potential to
create more than 150 000 of these jobs by 2030 if more projects
like these are given the go ahead by the government.

...

The Future of Coal: An E360 Report

Africa is often portrayed as a victim of climate change, a
continent that emits little carbon yet stands to suffer the effects
of the developed world's pollution. This view only holds if one
excludes South Africa, the continent's richest country and the
world's sixth-largest coal exporter, seventh-largest coal producer,
and thirteenth-largest CO2 emitter, with per-capita emissions twice
the global average. Ninety-four percent of the country's
electricity comes from coal, as does almost half its liquid
transport fuel.

But South Africa is also blessed with abundant renewable energy
resources, mainly in the form of plentiful wind and its famously
bright sun. These were largely unharnessed for power generation
until last year, when the government began inviting private
investors to produce cleaner electricity for the national grid.
Roughly $5.5 billion has since rushed into the country's renewable
energy sector, and dozens of wind farms and solar plants are now
mushrooming across the landscape.

Despite the newfound interest in renewables, coal's days in South
Africa are far from over. The government plans to increase coal
exports and the production of electricity from coal. Observers say
this is because coal is seen as cheap, the industry has a long
history of delivering reliable power, and influential people —
including President Jacob Zuma's son and some of his African
National Congress (ANC) party's funders — have financial interests
in so-called "black gold."

The state-owned rail utility is spending billions of dollars to
upgrade coal export lines, and the state-owned electric utility,
Eskom, is currently building the third- and fourth-largest coalfired
power plants in the world, 4,800-megawatt behemoths known as
Medupi and Kusile. The president's cabinet announced in August that
it intends to follow them with another, possibly smaller plant
provisionally named Coal 3.

Environmentalists are worried that the rail expansion and the
construction of Coal 3 will lock South Africa into the unnecessary
and harmful consumption and export of coal for decades to come. In
addition to the climate implications, they fear for the region's
scarce water resources and agricultural land, which are already
being polluted and torn up by mining companies on a massive scale.

The greens are not just up against coal, but against the whole of
South Africa's mining industry, which has shaped the country's
history more than any other force. First mined commercially 150
years ago, coal has been at the forefront of the exploitation of
South Africa's extraordinarily large and diverse mineral resources,
including diamonds, gold, and platinum.

The coal industry grew significantly under the notorious apartheid
regime, which came to power in 1948 and saw coal as the solution to
the twin pressures of an energy-hungry post-World War II economy
and international anti-apartheid sanctions. With no indigenous oil
reserves, South Africa feared being cut off from imported crude, so
the government invested heavily in coal-fired power plants and
created a state-owned company, Sasol, to convert coal into liquid
petroleum on an unprecedented scale.

Apartheid came to an end in 1994 with the election of Nelson
Mandela and his African National Congress (ANC) to power. In 2007
South Africa hit an electricity supply wall. Power cuts plunged
major cities into darkness and industries ground to a halt. Blaming
the situation on a lack of generation capacity and an unreliable
supply of coal to its existing power plants, Eskom began pulling
mothballed plants into action and accelerated the commissioning of
the mega-plants, Medupi and Kusile.

This has incensed environmentalists. While mining had been largely
unconstrained by environmental laws throughout the apartheid era,
the post-apartheid Constitution grants citizens the "right to an
environment that is not harmful to their health and wellbeing" and
obligates the government to pursue "ecologically sustainable
development." Dirty coal, they say, should be phased out, not
encouraged. Its costs in terms of climate destabilization, water
pollution, and lost agricultural land are becoming too high,
environmentalists contend.

Coal 3, the proposed new plant, is a particularly bad idea, they
say. It "doesn't make sense economically or environmentally," says
Saliem Fakir of WWF-South Africa. "It only makes sense when you
look at it in terms of vested interests and the politics of the
whole southern African region."

Coal 3 is likely to be built in the Waterberg coalfield that
underlies a remote part Limpopo Province in northern South Africa,
as well as part of neighboring Botswana (see map). Although the
Waterberg is one of southern Africa's largest known coal deposits,
it has remained underexploited because its complex geology and lack
of water and rail lines has made it less attractive to private
investors than "easier" coalfields farther south.

The Coal 3 plant would change this by guaranteeing local markets
for more Waterberg mines, says Fakir. In addition, associated
heavy-haul rail lines will allow access to lucrative export
markets, not just for the Waterberg mines but for new mines in
adjacent Botswana, too. Fakir points out that supporters of South
Africa's ruling party hold coal rights in the region, and that
landlocked Botswana's government has long sought a route to the sea
for its abundant but almost completely unexploited coal resources.

The South African coal industry is adept at navigating the
country's increasingly murky political waters. According to media
reports, President Zuma's son, Duduzane, and members of the Gupta
family — some of the president's wealthiest supporters — are
connected to two companies, Idwala Coal and Tegeta Resources. The
Sunday Times newspaper reports that Idwala admitted to the
Department of Environmental Affairs that the company had illegally
diverted a public road and a river, destroyed part of a wetland,
and illegally discharged pollutants as part of its mining
operations. Tegeta has been mining for two years without
environmental authorization or a water use permit, according to the
Afrikaans-language newspaper, Beeld. But there's little official
talk of prosecutions in these cases — the government instead has
emphasized its efforts to retroactively legalize the mines'
infractions.

Other media reports say that the ruling ANC, operating through a
front company called Chancellor House, effectively owns 25 percent
of Hitachi Power Africa. State-owned Eskom granted Hitachi a
lucrative contract to make the boilers of the two giant Medupi and
Kusile plants.

The coal industry argues that South Africa's antiquated electricity
grid is unable to handle the intermittent power produced by solar
photovoltaic installations or wind farms, and that southern Africa
has some of the world's largest coal deposits. It's folly, the
industry argues, to leave the billions of dollars and thousands of
jobs that coal represents just lying in the ground.

Environmentalists counter that the sun and wind are the answer to
South Africa's serious electricity shortages, which have crippled
industries and repeatedly plunged major cities into darkness in
recent years. They also stress the threat that coal mining presents
to vital rivers and farmland, a warning echoed by agricultural
unions across the country.

Most of South Africa's coal mining currently takes place in three
centrally situated coalfields that encompass a large area of
Highveld east of Johannesburg, a region that was an uninterrupted
sea of grassland and wetland before European settlement. The
grassland, when plowed, turns into excellent cropland, and about
half of South Africa's soybeans and a quarter of its corn is now
grown there.

Many coal seams in this region are shallow, inviting the attention
of stripminers who have ripped up hundreds of thousands of acres.
Other miners have dug shafts down to deeper seams. The result is a
ravaged landscape. Some important rivers are now so polluted by
acid mine drainage, which seeps out of abandoned mines, that they
can no longer be used by farms or factories. Underground coal seam
fires, some of which have been burning for decades, cause smoking
sinkholes to appear.

In January 2012 the town of Carolina, which lies downstream of
major coal mines, lost its entire municipal water supply overnight
when a huge volume of acid mine drainage was washed into its
drinking water reservoir by heavy rains. Residents rioted in
protest. It took nine months for the state to restore clean water
to the town.

The government has also acknowleged that 21 of Eskom's coal
suppliers were operating outside the law, without environmental
authorizations or the required water use licenses. As with the
Zuma/Gupta mines, the government sought to retroactively legalize
these operations rather than prosecute their owners.

Although coal clearly maintains high-level support, other energy
sources may soon challenge its dominance. Geological studies
indicate that South Africa may have large, deep deposits of shale
gas, for which broad-scale prospecting is likely to begin soon, and
coal companies are paying careful attention to a growing renewable
energy sector.

The solar potential of South Africa's western half is
extraordinarily good — it's dry and clear for most of the year —
and many parts of the country have high wind energy potential.
Since 2012, when Eskom began inviting private companies to bid for
contracts to supply renewable power to the national grid, local and
international investors have jumped in with enthusiasm. Each bid
round for contracts has been oversubscribed.

Google has plowed $12 million into a South African solar farm, and
the international consulting firm Frost & Sullivan recently
estimated that South African solar installations could be providing
grid power for as little as half the cost of coal by 2020.

In its latest update to its Integrated Resources Plan, released
this month, the South African government said it would likely
reduce the scale of the Coal 3 project by more than half, to no
more than 1,500 megawatts, in part because of a projected decline
in the country's electricity demand and projected increased
supplies of domestic natural gas and hydropower imported from other
African countries.

Coal 3 now faces several hurdles. Eskom's own experts don't like
it, says Fakir, because the Waterberg region is water-scarce and
supplying the water required to operate it will be extremely
expensive. Eskom also lacks cheap capital to finance Coal 3's
construction, Fakir says. The U.S. and the United Kingdom also
recently announced that they would no longer fund most new coalfired
power plants, either directly or via the World Bank, although
China and various multinationals may still provide the cash.

Large coal mining companies, unsure of the domestic market and the
effect of a carbon tax that might be introduced in 2015, are now
focusing on the expansion of the world's largest coal export
terminal at Richards Bay on the Indian Ocean to increase exports to
India and China. Key government powerbrokers support that plan.

Greenpeace Africa's climate and energy campaigner, Melita Steele,
sees Coal 3 as a last-gasp attempt by the coal industry to entrench
itself in the region's future.

"In the coming months and years the renewable projects that are
being built now will come on stream," she says. "People will see
that solar and wind power works and creates more jobs than coal. It
will be very hard for the government to justify Coal 3 then, and
they know it."

South Africa: Leading the Continent in Renewable Energy Market
Growth

Introduction

South Africa is seen as a preferred entry point for international
companies and investors into the rest of Africa based on the global
competitiveness index compiled by the World Economic Forum. With
the Renewable Energy (RE) industry in South Africa developing so
rapidly, it could also serve as a springboard into other countries
in Africa in this nascent industry. Africa and in particular, South
Africa, has a high level of RE potential available, writes Joanita
Roos, Research Analyst for Energy & Power at growth consulting
firm, Frost & Sullivan.

South African Policy Certainty and associated Growth

The Renewable Energy Independent Power Producer Procurement
Programme (REIPPPP) was introduced in South Africa to reach the
target of 3,725 MW electricity generated from renewable sources as
stipulated in the Integrated Resource Plan (IRP) 2010-2030. The
IRP, South Africa's 20 year master energy plan, is a living
document, scheduled to be revised in 2013 (though likely to be
delayed). The IRP is not solely aimed at least cost generation, but
incorporates factors like sustainable and efficient economic
growth, local job creation, addressing the demand on resources in
South Africa, as well as the need to meet nationally appropriate
emission targets in line with global commitments. Furthermore, a
draft report of the Integrated Energy Plan (IEP) has come out for
consultation, which is seen as the most important energy policy
document in South Africa, aside from the IRP. The IEP looks at the
full energy market in South Africa and the next IRP will be
developed off the base of this plan.

The RE industry in South Africa is experiencing significant growth,
due to the REIPPPP, creating an environment of relative policy
certainty, when compared to other African countries. It is expected
that the local content value for both Window 1 and 2 of the REIPPPP
will be up to R23,205 million. Furthermore, according to the
Department of Energy, up to 21,214 operational and construction
jobs will be created in the first two windows. Developers are
continuing to import the majority of their components from lower
cost suppliers in Europe and Asia, but this may change in the
following bidding windows if the local content requirement is
increased. For example, the majority of the solar modules utilised
in Window 1 of the REIPPPP was supplied by South Korean
manufacturer, Hanwha Solar, followed by Chinese manufacturer, Jinko
Solar.

Reaching of grid parity in South Africa

From 2018, it is likely that the RE market will shift from the
utility-scale sector to the commercial segment, as technology costs
decline and grid parity for wind and solar PV is expected to be
reached in 2015 and 2018 respectively. The rapidly decreasing price
path of solar PV technology has exceeded even optimistic scenarios
between 2008-2012. PV is projected to become among the most cost
effective generating technologies in South Africa in 2020.

Comments on relative markets outside South Africa and growth
limitations associated with policy

However, the current market for RE outside of South Africa is still
relatively small. Frost & Sullivan expects that the growth in
market size for RE in Africa will only be a fraction of that of
South Africa, based on research indicating that the focus in the
rest of Africa is primarily on increasing base load power from
hydro and gas sources. This does not mean that RE in the rest of
Africa should be discounted, since providing RE solutions might be
commercially viable on a case-by-case basis, such as supplying
hybrid energy solutions to mines, schools and hospitals.

Solar resources are abundant in the majority of Africa and there
are large areas available for the development of large scale
projects. A key benefit of solar power supply options is its
capability to operate economically at small scale. This is suitable
for Africa where there is no established grid in most parts. For
instance, the electrification rates in Kenya, Tanzania and Nigeria
are 18%, 15% and 50% respectively. Furthermore, Solar PV Thin Film
technology is particularly applicable to the African climate as it
can withstand the daily heat and radiation of the continent
significantly better than any other solar PV technology.

Unfortunately, the development of RE sources in Africa to date has
been limited. For example, Ghana's 2011 Renewable Energy Act (Act
832) stipulates the commitment to ensure that solar PV will supply
at least 20MW of the total electricity demand by 2015. With a
predicted growth demand in Ghana reaching 5,000MW by 2015, this
translates into a mere 0.4% contribution of solar PV in the overall
energy mix. Kenya's Feed in Tariff (FIT) was first implemented in
2008 and only included small hydro, wind and biomass. The second
draft of the FIT in Kenya published in 2010, added biogas,
geothermal and solar PV, but according to developers, the solar
tariffs were too low to attract financing. The Tanzanian government
is in the process of developing technology specific FIT.
Unfortunately, there have been several failed small scale solar PV
projects due to sub-standard PV equipment in Tanzania. In Uganda,
approximately only 2% of solar potential is utilised and there are
no large scale RE projects in the pipeline. Currently, Namibia has
no legal framework in place to support RE.

Conclusion

There are potential opportunities in the RE industry in Africa.
Some regional hotspots include Ethiopia, with an emerging market
for off-grid residential and agricultural solar PV applications, as
well as Kenya and Ghana with a growing residential (solar home
systems) market.

Frost & Sullivan concludes that due to the financial and legal
systems in place, the RE industry in South Africa is looking
promising and growing rapidly. This development could serve as a
platform for investors and companies to enter the industry and gain
a footprint into the rest of Africa. However, due to an
unsupportive regulatory environment, energy underpricing, lack of
technical capacity and a weak supply chain, the market growth of RE
in Africa is restrained.

AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
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